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84
Economic Commission for Latin America and the Caribbean (ECLAC)
Chile
In 2007, the rate of expansion of the Chilean economy increased in relation to the
4% recorded in 2006, and GDP growth for the year is estimated at close to 5.3%. This
improvement was helped along by strong upward trends in most components of internal
demand, led by a rise in investment of about 12%, a boom in comparison with the low
levels of 2006. This was complemented by strong export growth which was due to high
worldwide demand for the country’s main exports (copper, molybdenum, wood pulp,
methanol and salmon). Private consumption continued to expand, sustained by an active
labour market, and public consumption was up almost 8.5%, in accordance with the
terms of the budget law.
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
I
II
2004
III
IV
I
II
2005
GDP
III
IV
Inflation
I
II
2006
III
IV
I
II
2007
III
0
Inflation, 12-month rate of variation; unemployment,
percentage of the economically active population
CHILE: GDP, INFLATION AND UNEMPLOYMENT
GDP, four-quarter rate of variation
Macroeconomic management was made more difficult
by risks which arose in the external and internal
environments. First, soaring world commodity prices,
while favourable for several of the country’s exports,
were reflected in increasing costs for a number of
goods which affected prices on the domestic market:
fuels, wheat, maize and milk. This was accentuated
by a hard winter, the worst in many years, which had
a strong negative impact on the supply of fruits and
vegetables and caused sharp, albeit temporary, price
rises. Furthermore, rising fuel prices and the energy
shortage led to increases in regulated prices. This
caused unexpected and sharp rises in both short- and
long-term inflation indices from April onwards, and
the inflation figure for the 12 months to October stood
at 6.5%, exceeding the central bank’s target range.
Second, the crisis in the United States mortgage
market initially led to higher country-risk premiums
for the emerging economies. This had a limited impact
on Chile because the country is well equipped to deal
with such fluctuations. The measures taken by the
monetary authorities in the United States to deal
with the crisis, including interest rate cuts, widened
the positive margin between the rate in Chile and the
United States rate. This led to faster appreciation of
Unemployment
Source:Economic Commission for Latin America and the Caribbean
(ECLAC), on the basis of official figures.
the Chilean peso against the dollar, making it harder
for some Chilean products to compete with imports
and eroding the competitiveness of some exports.
Third, the outbreak of labour disputes cut the
output of the state-owned and private mining industry
and of some agro-industrial and forestry enterprises.
Preliminary Overview of the Economies of Latin America and the Caribbean • 2007
In the case of the Corporación Nacional del Cobre
de Chile (CODELCO), it is estimated that the labour
conflicts will result in higher costs and make it more
difficult to generate surpluses.
Lastly, in July severe restrictions were placed on the
supply of natural gas from Argentina, but this did not
have a significant impact on electric power generation,
thanks to the fact that many power stations which had
been using gas are also able to run on diesel fuel. In
any case, the cost of thermoelectric power generation
increased and its value added fell. The production
and export of methanol, the main input of which is
natural gas, was affected, and this situation is expected
to continue.
Despite these negative events, the foundations of
the Chilean economy remain strong, characterized
by great fiscal solvency, careful macroeconomic
management and continuing buoyancy in the markets
for its principal exports, which are well diversified. Thus,
the economy is in a good position to cope with external
fluctuations. The main exogenous risk factors are rising
oil prices and the danger that an economic slowdown
in the United States may spread to other developed
economies. On the domestic scene, a possible source
of risk might be a worsening of political and labour
disputes in an election year such as 2008. However,
the upturn in investment will strengthen supply and
the continuing improvements in the labour market will
boost consumption, so most analysts expect yearly
GDP growth in 2008 to be around 5.0%..
There was continuity in the general orientation of
the government’s main policies, although some changes
were seen in the parameters which govern them. Fiscal
policy continued to aim for a structural surplus, the
target for which was set at 1% of GDP up to 2007 but
was lowered to 0.5% for 2008. Together with a relative
increase in structural revenue from copper, this will
continue to boost the economy. Real spending growth
for 2007 is estimated at 8.5%, and the effective surplus
should be about 7% of GDP.
In the monetary policy area, the authorities
continued attempting to hold inflation within a target
range of 2% to 4% annually, a goal which, according to
the central bank, aims at the medium-term, or a period
of 18 to 24 months. Unexpected surges in inflation
from April onwards led to a series of increases of 25
basis points each in the monetary policy rate, in July,
August and September, bringing it up to 5.75%. The
rate has remained unchanged since October because
of a relative slackening in economic activity, evidence
that ripple price effects have had little impact on other
products or on domestic wages, and that medium-term
inflationary expectations had remained steady at an
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CHILE: MAIN ECONOMIC INDICATORS
2005
2006
2007 a
Annual growth rates
Gross domestic product
Per capita gross domestic product
Consumer prices
Average real wage c
Money (M1)
Real effective exchange rate f Terms of trade
5.7
4.6
3.7
1.9
14.7
3.1
11.9
4.0
2.9
2.6
1.9
11.9
-4.3
31.4
5.3
4.2
7.4b
2.9d
16.5e
2.2g
5.8
Annual average percentages
Urban unemployment rate
Central government overall
balance / GDP
Nominal deposit rate
Nominal lending rate
9.2
7.7
7.0h
4.5
4.5
13.5
7.7
5.5
14.4
8.0
5.8 i
13.8 i
Millions of dollars
Exports of goods and services
Imports of goods and services
Current account
Capital and financial account
Overall balance 48 317
38 148
1 315
442
1 757
65 620 77 263
44 329 53 133
5 256
7 985
-3 245 -10 985
1 997 -3 000
Source: Economic Commission for Latin America and the Caribbean
(ECLAC), on the basis of official figures.
a
Preliminary estimates.
Twelve-month variation to November 2007.
c General hourly wage index.
d Estimate based on data from January to September.
e Twelve-month variation to October 2007.
f A negative rate indicates an appreciation of the currency in real terms.
g Year-on-year average variation, January to October 2007.
h Estimate based on data from January to October.
i Average from January to November, annualized.
b
annual rate of 3%. The authorities have not ruled out
further rate rises if hikes in the prices of certain goods
(foodstuffs, fuels) were to spread to other prices or to
wages, thereby altering expectations. The central bank
argues that the monetary policy rate is still below the
neutral level and therefore has stimulated demand in
practical terms; future rate rises cannot therefore be
implicitly ruled out.
With a floating exchange-rate policy, a high level
of integration into world markets and a low country
risk, the depreciation of the United States dollar against
other reserve currencies, improving terms of trade and
the need for the state to sell a greater proportion of
its dollar revenues to cover increased spending, should
lead to further appreciation of the peso. The trend
intensified in September owing to the widening gap
between the central bank’s internal and external interest
rates, following its decision to increase them while the
Federal Reserve of the United States was cutting its
rates. Currency market trends in November 2007 do
not point to any significant changes in that area, and
the central bank denies that the real exchange rate is
clearly out of alignment with its equilibrium level.
86
Economic Commission for Latin America and the Caribbean (ECLAC)
In sum, given the pickup in economic activity and
the inflationary shocks, together with the downward
trend in the value of the United States dollar against
the world’s currencies, monetary and exchange-rate
policies will continue to face the challenge of striking a
delicate balance between inflation targets and the need
to maintain the competitiveness of the economy.
The labour market has reflected the recent economic
buoyancy, recording the decade’s lowest unemployment
rates during the third quarter, and showing a marked
increase in formal wage employment. The unemployment
rate will average 7.0% for 2007, comparing favourably
with the annual rate of 7.8% recorded in 2006.
In the first semester of 2007, the country’s total
exports posted a 12-month increase of 13.6%, led by
mining (18.9%) and agriculture (6.5%). Over the same
period, the volume of imports expanded by 17.5%,
mostly owing to purchases of capital goods (20.5%)
and intermediate goods (19.6%). The prices of the
country’s exports were up by 4.2% and those of its
imports by 2%, indicating an improvement in the terms
of trade. As a result, the balance-of-payments current
account continued to show a surplus, which is expected
to stand at 5.4% of GDP for the year as a whole. In
October 2007, the central bank’s international reserves
totalled US$ 16.2 billion.